The Last Look…

There is a certain irony in the foreign exchange industry’s appetite for faster settlement. For decades, FX has prided itself on being the most liquid and technologically advanced financial market in the world. Yet much of the infrastructure supporting that market remains dependent on processes designed for a world in which money moves considerably more slowly than trades.

A new paper from the Global Financial Markets Association’s Global FX Division (GFXD), Wholesale FX: Ready for Real-Time?, provides a timely examination of what happens when that distinction begins to disappear. The report considers a future in which FX trading extends towards 24/7 operation, settlement moves increasingly towards T+0 or instant execution, and traditional currencies coexist with stablecoins, tokenised deposits and other forms of digital money. The big question is not about the technology, but rather a practical one: what will it actually take to make all this work?

The answer is predictably less glamorous than many make it sound.

The central challenge is information. For a bank to make a price, it needs to know its positions, available liquidity, settlement obligations and credit exposures. That sounds straightforward, but the information is often distributed across trading systems, treasury functions, credit departments, post-trade operations and external nostro providers.

Compressing the settlement cycle means that information must become available much more quickly, potentially before a transaction is executed. A trading platform capable of executing in milliseconds is of limited use if the systems responsible for confirming available funds or updating credit limits cannot keep pace.

This is particularly important when considering the potential benefits of tokenisation. Digital money may allow assets and payments to move almost instantaneously, but that does not mean the institutions supporting those transactions can automatically manage the resulting liquidity requirements.

Indeed, faster settlement could introduce an entirely different set of funding challenges. Liquidity that previously needed to be available at a predictable point in the settlement cycle may instead have to be accessible immediately, across multiple currencies, accounts, wallets and settlement networks. That’s a lot of complexity.

However, there are potential benefits. The GFXD identifies opportunities to reduce nostro funding costs, improve capital utilisation and release settlement balances more quickly. But these savings depend on the ability to manage liquidity efficiently across what could become an increasingly fragmented infrastructure.

And fragmentation is perhaps the most underappreciated risk in the industry’s digital transformation.

Rather than assuming that a single new technology will replace existing market infrastructure, the GFXD envisages a future in which traditional and digital settlement systems operate alongside one another. Different forms of money, custody arrangements and trading venues could proliferate, each with its own operational and liquidity requirements. Simple, isn’t it?

There is also an important distinction between the ability to trade around the clock and the ability to provide meaningful liquidity around the clock. The fact that a tokenised security can change hands on a Sunday does not automatically mean a bank can hedge the associated currency exposure at an acceptable price.

Nor does instant settlement eliminate the need for credit, funding or risk management. In some circumstances, it may make those functions more demanding.

One of the more interesting assumptions in the GFXD paper is that conventional FX products, including forwards, swaps and options, will continue to exist alongside new instruments such as intraday swaps. That raises the prospect of changes not just to settlement infrastructure but to the way liquidity and funding are priced. It also suggests that the industry’s evolution will be considerably more complicated than simply putting existing transactions onto a blockchain.

GFXD’s proposed priorities are revealing: better information exchange between trading and post-trade functions, greater automation and fewer manual exceptions, and more resilient systems capable of supporting extended operations. Not glamorous, but essential.

Perhaps the most important message from the paper is that faster is not necessarily safer. Shorter settlement cycles may reduce some exposures, but poorly coordinated changes could create new operational, liquidity and settlement risks elsewhere in the system.

For an industry processing $9.6 trillion in daily trading volume, according to the 2025 BIS Triennial Survey, these are not trivial considerations. Because the direction of travel seems clear. Client demand, tokenised assets and digital payments are pushing FX towards longer operating hours and shorter settlement cycles. But the commercial case for individual technologies remains dependent on their economics, interoperability and adoption.

The industry’s next challenge is therefore to ensure that the entire market can function safely at that speed, not simply to make FX transactions faster. 

And that may prove a much harder problem to solve than the technology itself.